Allied Capital Corporation

Life begins at 50

Allied Capital, which celebrated its 50th anniversary in 2008, is one of the most established and solid firms in the history of the private equity business.  Throughout its history, Allied Capital has had more good news to share with shareholders than bad.  The company began trading in the over-the-counter market in 1960 and made quick progress, paying dividends to shareholders within three years.  In 2001, Allied Capital made its stock even more available to the public by being listed on the New York Stock Exchange.  Just two years later, the firm celebrated 40 consecutive years of quarterly dividends.  In 2008, Allied Capital reported $5.1 billion in assets and a portfolio of investments across 124 different companies worldwide.

Targeted investments

Allied Capital invests in companies in a number of different industries but focuses its energies on five key sectors: business services, financial services, consumer products, energy services and health care services.  Within these industries, Allied Capital looks for targets with strong management teams who own significant equity stakes in their companies, a leading market position, steady operating margins, free cash flow, high return on invested capital and a strong balance sheet.  Once Allied Capital invests in a company, it plans to stick around for a while: typical investments last five to 10 years.

A close call

Allied built a sizeable portfolio of commercial mortgage-backed securities (CMBS) and real estate-backed collateralized debt obligations (CDO) from 1998 to 2005.  The company sold these holdings to a French Canadian firm in 2005 for $976 million, realizing a net gain of $216 million on the transaction.  This proved to be a shrewd move for the private equity company as commercial mortgage-backed securities and collateralized debt obligations would be the center of the maelstrom in the deteriorating market that began to unwind in the spring of 2007.

Tough times, hot prospects

Despite Allied Capital's fortuitous timing on the sale of its CMBS and CDO portfolios, it has not escaped the credit crisis completely unscathed.  The firm's stock has lost approximately 50 percent of its value since the autumn of 2007, when it was trading at approximately $30 per share.  However, all is not lost as the company entered into high-profile collaborations with giants of Wall Street.  In 2008, Allied Capital partnered with GE Commercial Finance for a $3.6 billion senior secured unitranche loan fund as well as with Goldman Sachs Private Equity Group for $125 million.

No fooling around

Allied Capital Corporation suffered a press onslaught in May 2008 when Greenlight Capital CEO David Einhorn published a book called Fooling Some of the People All of the Time: A Long Short Story, detailing his battle with the company after he called for investors to short Allied stock in 2002.  Einhorn accused Allied Capital of widespread fraud that included making loans to people who couldn't afford them.  Allied denied wrongdoing, accusing Einhorn of intentionally trying to drive down the company's stock price to create his own self-fulfilling prophecy.  In an interview with Bloomberg News, Einhorn stated that the victims in this dispute are truly the shareholders who "are buying in on the basis that the SEC has looked into what's gone on and corrected it and that the financial statements of Allied Capital reflect its true financial position, including the fair values of its investments."

In February 2009 the true picture of Allied Capital's financial health emerged through the company's 8-K filing with the SEC.  Dated Feb. 13, 2009, the report stated that Allied Capital had $50 million in outstanding borrowings, $120 million in outstanding letters of credit issued under its revolving credit facility and $1.01 billion in outstanding private notes.



Allied Capital Corporation


1919 Pennsylvania Ave. NW
Washington, DC 20006-3434
Phone: (202) 331-1112
Fax: (202) 659-2053
www.alliedcapital.com

STATS


  • Employer Type: Public
  • Stock Symbol: ALD
  • Stock Exchange: NYSE
  • Chairman, President & CEO: William L. Walton
  • 2008 Employees: 130

Key Financials

  • 2008 Income: $-1,040 million
  • 2008 Revenue: $502 million

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